This morning, Xebec announced it had signed a new $6-million contract for a landfill biogas plant in Italy.

“Upgraded landfill gas to RNG is playing an increasingly important role in the deployment of low carbon fuels in transportation. We expect Xebec to be a fundamental change agent in this transition, as we move from a fossil fuel economy to a low carbon renewable energy future,” CEO Kurt Sorschak said.

Shaath says the wind is at Xebec’s back when it comes to RNG projects.

“We continue to see traction in RNG with recent targets set by SoCalGas adding >$500 million revenue opportunity,” the analyst says. “Last week, The Southern California Gas Company (“SoCalGas”) set medium and longterm targets for RNG on its push to become North America’s cleanest utility. SoCalGas set a target to replace 20% of its natural gas supply with RNG by 2030, with a short-term target of 5% RNG supply by 2022. California is the second largest consumer of Nat gas in the US, with over 2.1 trillion cubic feet “Tcf” (<8% of total US consumption). Compared to XBC’s current significant RNG markets, California ranks second to Italy (2.6 Tcf) and ahead of France (~1.6 Tcf). Benchmarking against Italy and France’s allocated budgets, we estimate California would need to spend upwards of $3.0 billion to achieve its goal. XBC’s immediate market opportunity is upward of $500 million. We highlight that SoCalGas has already filed a request asking California Public Utility Commission to allow customers to buy RNG in their home by the end of this year. The state’s RNG market is still in its first inning, with the RNG flowing to SoCalGas’ pipelines for the first time in 2H/FY18. Additionally, according to the DOE the US’ production of RNG is expected to grow at >20% CAGR for the next 12 years, from 1 Tcf to 10 Tcf.”

In a research update to clients today, Shaath maintained his “Buy” rating on XBC, but raised his one-year price target from $1.70 to $1.90, implying a return of 46 per cent at the time of publication.

Shaath thinks Xebec will post Adjusted EBITDA of $1.9-million on revenue of $27.4-million in fiscal 2018. He expects those numbers will improve to EBITDA of $6.0-million on a topline of $50.0-million the following year.

“FY19E will be the first year where XBC starts delivering on its largest RNG order, and with the new win, we expect the company to record $50 million revenues in FY19,” the analyst adds. “This should increase confidence in XBC’s ability to land larger orders ($10-$20 million per project). For reference, a year ago XBC’s clients were more focused on the company’s size given its LTM revenue of $5 million becoming the norm.”

About Nick Waddell

Cantech Letter founder and editor Nick Waddell has lived in five Canadian provinces and is proud of his country's often overlooked contributions to the world of science and technology. Waddell takes a regular shift on the Canadian media circuit, making appearances on CTV, CBC and BNN, and contributing to publications such as Canadian Business and Business Insider.